Calculating
the Withholding Amount
Your obligation
to withhold federal income tax from your employees' wages
extends to each separate wage payment that you make. For
instance, it's improper for you to pay your employees their
gross wages for the first three or four weekly payroll periods
in a month with no taxes withheld, and then deduct all taxes for
the month from the last paycheck. Each wage payment is a
separate and distinct taxable event.
Because the total federal income tax you withhold from a
particular employee's wages is supposed to approximate that
employee's year-end tax liability, the amount you withhold for
each of your employees is likely to be different. The factors
affecting how much you must withhold from a given wage payment
are (1) the frequency of your payroll period, (2) the employee's
marital status, (3) the number of withholding
exemptions the employee claims, and (4) the size of the wage
payment.
Even if you're mathematically challenged, you can quickly
determine your withholding amounts if you know these factors
because the IRS has incorporated the required computations into
easy-to-use tables.
You can obtain a free copy of the standard tables by calling
the IRS at 1-800-TAX-FORM and asking for Publication 15, Circular
E, Employer's Tax Guide. Additional tables are included in
Publication 15A: Employer's Supplemental Tax Guide. If
you use payroll software to generate your employees' paychecks,
the software will automatically consult the tables and compute
the tax to be withheld from each paycheck.
Standard tables. There are two basic types of
withholding tables. The easiest to use are the wage-bracket
tables. There are different tables for five types of payroll
periods (weekly, biweekly, semimonthly, monthly, and
daily/miscellaneous). Using the applicable table for your
payroll period and the employee's marital status, you merely
find the wage bracket within which the employee's wages fall,
and then read across the table to the column that reflects the
number of withholding exemptions the employee has claimed to
find how much you must withhold.
The percentage method tables are the other commonly used
withholding tables. Percentage method tables are available for
eight different payroll periods (weekly, biweekly, semimonthly,
monthly, quarterly, semiannual, annual, and
daily/miscellaneous), and there are separate sets of tables for
married and single employees. Your first step in using these
tables is to reduce an employee's wages by the value of the
employee's withholding exemptions. Then, using the applicable
table for your payroll period and the employee's marital status,
you find the wage bracket within which the employee's adjusted
wages fall. The withholding tax is shown in the table as a
dollar amount plus a percentage of that portion of the wages
that exceeds the minimum bracket amount.
Alternative methods. There are a number of other
methods that you can use in lieu of using the wage bracket or
percentage method tables to determine how much you must
withhold.
However, we suggest that you consult with your accountant or
other tax professional before attempting to use any of these
alternative methods because they are much more complex than the
standard withholding tables.
|
Keep in mind that no matter which method you
select to determine your withholding taxes, you
have no discretion to withhold less than the
amount of tax prescribed by that method. Nor, as
a general rule, may you withhold more than the
prescribed amount, unless an employee requests
that you do so.
|
|
|